Myer is in no shape to repeat the heroics of its founder, the late Sidney Myer, during the Great Depression in this downturn. Fairfax Media

Of all the contributions the department store giant’s founder Sidney Myer made to the city of Melbourne, perhaps none were greater than his actions as the Great Depression gripped the world.

As unemployment soared, Sidney kept on all of his 5300 staff by asking them to follow his example and take a pay cut.

He funded relief work for unemployed men, paid for the construction of roads during the crisis and held a Christmas dinner for more than 10,000 people in 1930 at the Royal Exhibition Building. When Sidney died four years later, 100,000 people lined the streets as part of his funeral.

Myer announced late on Friday that 10,000 store and support centre staff will be stood down without pay until at least April 27, adding to a horror week for the Australian economy. The forced shutdown of the hospitality, tourism and travel sectors flowed quickly through to the retail industry, with 30,000 (hopefully) temporary job losses announced in the back half of last week.

Things haven’t improved over the weekend. Myer’s announcement was followed by similar decisions on Saturday by Cotton On Group (22,000 employees globally and 670 stores around the country) and Country Road Group (5000 staff at 280 stores).

The details and methodology are unclear, but it seems we’re heading for a scheme that pays workers that have been stood down by their employer – that is, not made redundant, but in effect hoarded for the eventual recovery – as much as 80 per cent of their wage, probably via the tax system, to ensure rapid delivery. Morrison’s message on Sunday was that this will be bigger than any stimulus seen so far.

The final bill for the subsidy will be much less than that but still huge for a government that, just three months ago, guarded its budget surplus like it had the last three rolls of toilet paper in the country.

Expect to see some sort of cap on the amount that will be available to employees, which is reasonable given the sheer cost of the private sector’s wage bill, which is about $200 billion per quarter on the numbers of Exante’s Grant Wilson.

The final bill for the subsidy will be much less than that but still huge for a government that, just three months ago, guarded its budget surplus like it had the last three rolls of toilet paper in the country.

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No doubt it will have its critics, but a wage subsidy is arguably more palatable and effective than direct government bailouts for large and strategic employers to help them keep staff on.

A wage subsidy will obviously help limit further, permanent job losses. But perhaps more important is what it will do for the economy when it eventually comes out of a recession.

Take a business like Myer, which is in the midst of a difficult and complex turnaround under chief executive John King, who was appointed in June 2018.

Future not guaranteed

With a market capitalisation of just $86 million, and cash of $103 million at January 25, Myer can possibly squeak through six months with minimal revenue, providing its wage bill, which is about 40 per cent of sales, is close to zero, and some deal can be reached on rent.

But even if it can survive the health crisis, its fate could be sealed if the economic recovery is as slow and as painful as many fear.

So while Myer will welcome a wage subsidy to support its staff, it will also welcome the fact that the subsidy should mean that households can minimise the need to dig into savings or superannuation during the lockdown and hopefully, emerge with the means to get consumer spending firing again.

A wage subsidy may also give investors and lenders more confidence if Myer needs to borrow or even raise capital, as Citi’s Bryan Raymond has suggested.

Myer’s future is far from guaranteed, but the subsidy might just give a business like this the lifeline it needs.

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